Statutory and Regulatory Compliances to be followed by online business

Online business

The people now worldwide have started shopping online. Around more than 85% of people do online shopping at once. With each passing day, there is an increase in the number of online stores and enhancing online business to a new height. Now, the customer has become smarter to choose a product at large in one go. Earlier, there were only limited stocks to pick the product with a limited option at stores. E-commerce, which is Electronic Commerce or we can say online business has revolutionized in recent years and has become a customer-oriented market. India is one of the fastest-growing markets for online businesses. In 2014, the online business created a buzz in the international market when formal sales crossed 1 trillion.

E-commerce or online business laws and regulations are still evolving in India which creates uncertainty among many entrepreneurs. The Information Technology Act 2000 governs the matter whenever there are online disputes in India but several aspects still need to be covered under this Act. It has been a false impression that there are less legal compliances for online business companies as compared to their offline counterparts. However, selling online does not give less burden of meeting up with the compliances. The law acts both for online as well as offline companies as the same. Here are some statutory and regulatory compliances to start an online business.

Statutory and Regulatory Compliances for Starting an Online Business

 In India for various different business models, there are different legal issues of online businesses. For example, digital communication channels for drugs and healthcare products in India are scrutinized more aggressively than other e-commerce activities. In fact, statutory, regulatory,  and legislative measures to check online trading in India are already in the channel.

Structure of Business

One requires choosing the correct business structure for the company and registering it. Without registration of the online business, the business person would be exposed to plenty of risks. So it is very necessary to register the company and limit the liability to the amount of investment. An online business can be operated by opening a Partnership Firm, LLP, Private Limited Company or sole proprietorship etc. The raising funds are the final aim of the online business entrepreneur and hence the most popular choice of business structure is opening a private limited company. The process of incorporation of any business structure can be done online easily.

Domain Name

The domain name of the company gets registered, once the business structure of the company is decided. For an online business company it is necessary to protect their own intellectual property and also ensure that they do not get violated by anyone else. While picking up the name one must make sure that it does not resemble an already registered name. Most of the online business companies choose a unique name and file it with Trademark Registry to acquire an exclusive right over that name and make it a brand name to expand their international business market.

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Terms of Service and Privacy Policy

The terms and conditions of any website create awareness for the customers about the rights and responsibilities of the concerned website. It provides a legal cover to the entrepreneur or promoters in case of any liability incurred from any agreement entered with the user or another company. On the other hand, the privacy policy communicates to the customers how the online business companies would use the information related to the customers and ways in what ways they would protect their personal information. The Privacy Policy is always published on the website of the company so that it is readily accessible to all the customers who visit the website. Such documents protect the business person from being sued under section 43A of the Informational Technology Act, 2000 in which the penalty could go up to Rs. 5 Crores.

Protecting data

According to the Section 43A of the Informational Technology Act, 2000, the Sensitive Personal Data or Information (SPDI) such as Passwords, Medical records and history, financial information such as credit card details and Bank account details etc. as provided by the customer needs to be protected by reasonable means by such business entity. An online business entity has to satisfy the requirement of implementing a reasonable security practice and a standard procedure that ensures the protection of sensitive data. The International Standard IS/ISO/IEC 27001 relating to ‘Information Technology-Security Techniques-Information Security Management System–Requirements’ is considered to be the standard required for securing sensitive data.

Supplier/Vendor Agreement

An agreement with the vendors is required to be maintained by all the online stores which are listed in their portal. However, in case the entrepreneur sells their goods in the stores and not involved in any online business, then also requires having an agreement with their suppliers. The agreement must specifically define the role and responsibility of each party and shall also includes all the relevant clauses and terms to cover issues like default, late delivery, quality of the product, payment, etc as per the business models of the company.

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Tax Registration

The taxes are applicable in case of sale of tangible goods, whether the business is done online or offline. The money is received through a payment gateway or by mortar payment system like Cash on Delivery in each scenario all tax liabilities are applied. A content-based site is required to pay income tax on the generated revenues of advertising but does not need to pay service tax. Before the enforcement of the GST (Goods and Services Tax) in India, the service providers in many sectors had to pay tax on the services rendered by them. The Government of India has come up with a ‘negative list’ of services for some time now, where the services on that list are not subject to tax. This will simplify the process of finding out whether one has to pay service tax or not. Apart from income and service tax, many states have other state-specific taxes that one will have to pay, such as Profession Tax.

Payment Gateway and Related Compliance

A payment gateway is a service used by the online business websites to process the payment made by the customers. Payment gateways are such as PayPal, Paytm etc. accepts the debit cards, credit cards, and net banking from multiple banks and transfers the money to the bank account of the e-commerce legal compliances for online stores company. However, to avail of the facility and service of payment gateways, it has to first obtain the license from Reserve Bank of India (RBI). The business owner has to submit documents such as Bank account details in favor of the company, Memorandum of Association, certificate of incorporation, Articles of Association, PAN card of the company, Address proof, Privacy policy and terms of service of the concerned website. Furthermore, there is a requirement of Banking and Financial statements which are complied with such transfer and online shopping.

Adherence to cyber law crimes

All online business persons must ensure cyber law due diligence in India. The Cyber laws of India have become very stringent that require online business entrepreneurs to ensure cyber law due diligence in India. Many online business websites, foreign companies, and even Indian companies are frequently prosecuted for non-compliance with cyber laws. Therefore, websites in India doing online business and marketing must ensure privacy protection, data security, data protection, cybersecurity, confidentiality maintenance etc. as well. Such adherence also needs to be noticed with respect to payment gateways that the businesses opt for.

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Legal Documents

It is mandatory to protect the business and the promoters of the business while doing online business by making proper legal documentation and contracts in the business. The terms and conditions, disclaimer and privacy policy would have to be drafted by the companies based on the nature of its activities and products sold online. If the business is done through online marketplaces, then the legal document or seller’s agreement is made and the seller must abide by the agreement. It is important for any business to read the agreements before forming it into a contract.

Bank Account

Every business requires a bank account which is opened in the name of the business by contacting a Bank. Opening of bank account is essential to list of an online business marketplace or obtain payment gateway for an online marketing website.

Intellectual Property Protection

It is very important to obtain Intellectual Property rights protection in favor of name/logo/design used in the online business. One can easily fraud and can copy a logo from a website, unless precautions have been taken. For the protection of the business entity it is mandatory to get it registered. The process of protecting the name/logo is made by filing for a trademark.

People and Agreements

The people who run an online business are very real even if the business exists in cyberspace. The web-based business may involve ‘technical’ persons, ‘marketing’ persons, whereas the technical person brings technical expertise to the firm but can’t give capital. This arrangement must be stated very clearly in writing at the agreements. Legal is often overlooked by new entrepreneurs, it is to be remembered that the cost of not getting legal work done is always going to be more than getting it done early on.


Legal and regulatory compliance for online business companies differs according to each category of business. Online business companies are required to comply with the provisions of contract law, Indian Penal Code, Labour laws etc. In various states, there is an obligation of obtaining Shop and Establishment license for opening offices. The registration under the Shop and Establishment Act has to be done within 30 days from commencing the work. The Information Technology (Intermediary Guidelines) Rules 2011 lays down stringent liability for online business sites in India. So a proper digital due diligence is advisable before commencing any online business websites.

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